Addressing the challenge of “Ageism in Finance” in Germany

Guest author: Cornelia Schwertner, CEO and Co-founder at Brygge
November 9, 2023

In short: This article by Cornelia Schwertner, CEO and co-founder at Brygge, discusses the prevalent issue of ageism in the German financial sector. Schwertner identifies the disparity between general internet usage and online banking among higher age groups. She critiques banks for failing to invest in elderly-centric digital solutions and invites the market and politics to overcome their lack of substantial support in the face of increasing scams targeting older adults. The author emphasizes the need for a comprehensive approach to do so, including new EU laws, AI development for consumer protection, and user-centricity by banks. Ultimately, Schwertner calls for a strong alliance between politics, science, and financial markets to enhance financial inclusion and challenge ageism effectively through innovation.

German banks have always been at the forefront of the global financial industry and therefore also spread their influence on a multinational scale. Given the unique characteristics of their home location, they could also be pioneers of age-friendly solutions to financials.

However, banks in Germany seem to be "demographically blind", failing to address the challenges faced by Germany's elderly population, starting with online banking. This neglect needs to be mitigated, especially considering that Germany, with 23 % of its population aged 65 and above (approximately 18 million), is one of the oldest countries in the world. Almost every 2nd German is 50 and above. And the demographic shift is fueled by declining fertility rates and increasing longevity. 

The Gap between Internet Usage to Online Banking

More and more people in Germany are using online banking to check their account balances or make a bank transfer on a daily basis. Nevertheless, there are still many Germans who have not yet recognized the benefits of digital finance. In 2022, as shown in the graph below, 83 % of Germans in the age 65 and above used the Internet, while another official report has shown only 31% of people in this age group and above were using online banking. And this gap starts earlier, namely at 45 and above: while 95 % in this group are online and only 60 % use e-banking.

Graph 1: Internet vs. Online Banking Use according to Federal Statistical Office: 

Sources: Internet Use (2022) vs. Online Banking Use (2020) by Federal Statistical Office 

So this low usage of online banking among older adults is a stark contrast to their general internet usage. Similar to patterns seen in other European countries, this disparity is attributed, in part, to limited digital and financial literacy and barriers of trust. The problem could further escalate if the trend of closing traditional bank branches continues – in the last decade, one in every three brick-and-mortar bank branches in Germany has been shut down.

From a multinational perspective, the graph below shows that the percentage of online banking usage in Germany is lower than the average in the EU-27, at a German total of 49 % compared to almost 60 % on EU-average (Eurostat figures from 2022). The differences between the countries can often be linked to the age structure and median age. While the leading EU countries mainly benefit from their overall progress in digitization due to earlier adoption, greater trust in technology, or lacking holistic data protection debates.

Graph 2: Percentage of individuals using online banking in selected countries in Europe

Source: Eurostat (2022)

The Crucial Need for Age-Friendly Banking

In my opinion, the significant gap between using the Internet and using online banking among seniors is driven by what I call “Ageism in finance”. Ageism in finance refers to the prejudices, stereotypes, and discrimination against people in the financial sector, specifically based on their age. This can manifest in multiple ways and can affect both older and younger people. For older adults, ageism in finance can occur when financial institutions, like banks or insurance companies, deny them certain services or offer them less favorable terms due to their age. They may face barriers to accessing new banking technologies due to a lack of user-friendly interfaces for this age group. Fighting symptoms by training seniors in non-centric solutions is part of this ageism too. Moreover, older adults can be targeted by financial scams or frauds more often, and may not yet receive enough support or protection from financial institutions.

The fact that digital banking and e-payment solutions need to be more age-friendly was recently also acknowledged in a study by the EU Commission, reflecting on two main issues: “(1) accessing payment accounts and (2) the complexities faced by some consumers (such as the elderly) when adapting to new procedures [...]. Increasing digitalisation of payment services, coupled with lack of digital financial education of customers might lead to financial exclusion of vulnerable groups.”

In the past years, German banks have tried to address the low usage of online banking by older users. They have done so by training seniors in online banking. Yet, none have addressed the root problem: a lack of investment in elderly-centric digital solutions with added value for financial matters tied to longevity.

Risks Associated with Older Age Groups

With age, the risk of receiving incorrect advice or feeling overwhelmed by financial decisions increases. In anonymous tests in 2021, the German Financial Supervisory Authority found a double impact of misadvise by bank advisors among people over 60. Shortcomings were found in nearly all tested banks across all customer profiles, particularly the "senior citizens" profile, where issues were noted in 50 % of all investment consultations. This was contrasted by the "young people" and "working people" profiles, which only had issues in a quarter of their consultations. This year's anonymous tests found significant deficiencies regardless of age.

Due to various risks associated with older age groups, seniors are a particularly vulnerable customer segment, not only when it comes to investment consultations. A pressing concern is the rising number of scams targeting consumers, particularly seniors. According to figures Brygge directly requested from various state criminal police offices from Germany, shock and trick fraudsters caused damages of € 9.5 million in Berlin and Hamburg alone in 2022. Another police source points to the fact that cyber trading fraud in Germany led to an estimated total consumer damage of € 1.0 billion for the years 2021-2022. Imagine a future where AI enables fraudsters to deceive older adults even more effectively! 

The EU financial market invests billions in monitoring its own liability or compliance risks, but scant resources are put towards innovative consumer protection, especially for older customers. 

Working in the German financial market for 15 years now, I could simply assume that banks have been focussed on other vertical innovation trends, be it Female or GenZ Finance. I could also boldly state that banks are currently more busy with making sure AI-driven push sales do not violate consumer protection rules, instead of investing in AI for consumer protection. However, given my legal background, I am also aware that the current regulatory status quo means hurdles for banks, hampering innovation in new digital consumer protection, such as:

  • The Banks’ general execution duty for payment transfers, i.e. the unregulated conflict between protecting consumers vs. not serving or even patronizing them.
  • The Banks’ anti-money laundering focus, i.e. while they are obliged to report suspicious transfers to the state’s Financial Intelligence Unit (FIU), they are not even allowed to share such information in parallel with their account holders (so-called tipping off ban).
  • The Banks’ fear that any unregulated innovation in such consumer protection could establish habitual rights for a complete protection of consumers, which they become liable for, while they will never be able to deliver a 100 % effective solution.

How to change the Status Quo

So what is needed now to empower consumers, especially older adults, to manage their finances more efficiently and protect them from financial exploitation? In my opinion, a powerful alliance between politics, science, and the financial market, with a focus on user-centric innovation. 

Here are three preliminary ideas:

  1. New EU laws should empower banks to do more than just educate consumers. By providing explicit legal allowances to develop initial digital protection tools, we can minimize the current legal risks for banks. What can we learn from other jurisdictions, such as the USA and their first experience with US FINRA 2165 or the UK, with the FCA's Guidance on vulnerable Customers
  2. Building databases for the common good to enable AI development for consumer protection. Public consumer warning lists help, but automated prevention integrated into personal digital finance apps would be much more effective. At best fueled by state-backed, central databases on known cases of financial exploitation.
  3. Simplifying banking and payment solutions can protect consumers. New accessibility obligations for EU banks are already in the making by the EU Commission’s proposals on revising the PSD2 and also the EU Accessibility Act

To summarize, political changes to foster elder-centric products will take time. So banks must also want to change for reasons of user-centricity, the cost-saving potential and their new economic opportunities in longevity finance. Meanwhile, first trailblazers can start implementing innovative technologies to protect older adults in the financial sector and others will follow. Step by step we will jointly combat ageism on a larger scale through technology and innovation.

You may also want to check the course 'Introduction to Age-friendly Banking' that is closely aligned with the subject matter of this article.

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